SBI increases base rate to 9.80%, makes loans costlier

The country's largest lender, State Bank of India, on Thursday said it increased its base rate, or the minimum rate of lending, to 9.80%, a day ahead of the RBI's policy review.

"State Bank of India has revised the base rate by 0.10% from 9.70% per annum to 9.80%," it said in a statement. Retail term deposit rates have been revised upward, it said.

SBI is the first major state-run bank to hike lending rates after short-term rates rose as a result of the Reserve Bank of India's liquidity tightening moves announced in July. The decision comes on the eve of the mid-quarter review of the monetary policy.

According to watchers, new RBI governor Raghuram Rajan has been given some room to take an accommodative stance after the US Federal Reserve surprisingly delayed the tapering of liquidity infusion.

SBI also increased the spreads on auto and home loans by as much as 0.20%, which will affect new borrowers.

Home and auto loan borrowers typically pay a margin, or a spread, above the base rate, which is arrived at as per the risk and quantum of borrowing.

The bank has hiked rates for loans under the benchmark prime lending rate, an older system of computing interest rates, to 14.55% from 14.45%. The lending rate hikes are effective from today, it added.

A senior bank official said the decision to increase rates was taken by the asset liability committee, which met late last evening.

"There has been an increase in our cost of funds and the pressure will only increase further as we enter the festive season, which increases the requirement for liquidity," the official told PTI.

New housing loans under Rs 30 lakh will come at 10.10% as against 9.95% earlier, while interest rates on auto loans will go up to 10.75%, the official said.